Forget Bitcoin! Got Ripple?

Although you're unlikely to see "We accept Ripple" signs in the same way you see Bitcoin signs, you may still end up using the Ripple protocol.

Imagine being able to send money the same way you send email -- with no cost and no delay, even to recipients across the globe. That's the vision the folks at Ripple Labs (formerly OpenCoin) have for money, and the realization of this vision could prove to be a real game-changer for transactions between buyers and sellers who use different currencies.

By now, most people have at least heard of Bitcoin -- the biggest name in digital currency -- even if they don't quite understand how it works. Bitcoin has accumulated quite a large amount of notoriety over the past couple of years. Some of this attention is due to Bitcoin's dizzying price fluctuations; some is owed to its association with shady transactions that are facilitated by its anonymity. But there's another major player in the digital currency game that people should learn about. This player is called Ripple, with an uppercase "R" used to denote the protocol and a lowercase "r" used to denote the currency itself, which is also referred to as XRP.

Whereas Bitcoiners tend to focus on the currency unit, Ripple positions itself more as a system for clearing transactions free of transaction fees and delays. Ripple Labs created the Ripple protocol as a free way to move money across the globe using the power of the Internet. Ripple offers an explanation of what it means by "the future of money" in this video and with more technical details in this longer video:

Like Bitcoin's digital currency, which is limited to 21 million coins, Ripple Labs has set a cap on its digital currency, though theirs is much higher at 100 billion. Another feature the two have in common is irreversible transactions, which -- along with the lack of fees -- makes digital currency more appealing to merchants than traditional credit card payments. However, unlike Bitcoin and some of the coin systems that copy the same model, ripples are not released through computer mining. Instead, they are held by Ripple Labs.

In place of mining, Ripple confirms transactions through "consensus," which offers two key advantages. One is a major savings of electricity, as mining (at this point, when Bitcoin values hover around $500) consumes massive amounts of computer processing power. The second is much faster clearing. Ripple is designed to facilitate the transfer of money from any form of currency and to clear transactions in just five seconds, as opposed to the ten minutes (minimum) required for Bitcoin transactions to clear through the blockchain.

To clarify the exact figures and percentages involved in Ripple Labs' holdings, I contacted Michael Azzano, whose company represents Ripple Labs. He said that the founders of Ripple Labs retain 20% of all the ripples and the entity of Ripple Labs "retains 25% of XRP created to fund daily operations (through trading XRP) and distributes from the remaining to market makers, partners, and gateways to seed liquidity." The rest are put through the organization to eventually make their way into circulation.

Azzano also explained that, although XRP currency is given less of a starring role than we see for Bitcoin, it is "a functional part of the protocol that helps prevent attacks and serve as a universal currency for real-time FX trading." As the "Babelfish of money," it works as a "universal translator" for all currencies, whether they are fiat, digital, or even rewards like miles.

Ripple Labs has made progress toward its goal of realizing a "global value web" that operates "like today's information web," enabling money to be sent as quickly, easily, and freely as email. Among its milestones are making it into the mainstream in May when Fidor became the first bank to being using Ripple to move money. Another milestone was making inroads into seven countries in Latin America through a partnership with AstroPay in June.

Andres Bzurovski, founder of Ripple LatAm, observed, "Ripple LatAm effectively opens the region for business, allowing for real-time B2B cross-border payments between markets in each partner's currency of choice." As a simple example, a business located in the EU can now send payment to a business in Brazil without the delays and fees typically imposed by financial institutions for such transactions. Such seamless pathways for money can really speed up transactions along the global supply chain and even open up new opportunities for small businesses abroad to gain access to overseas customers without crushing fees or interruptions to cashflow.

While Ripple is gaining momentum, it doesn't garner visibility in the same way as Bitcoin because it is designed to work within the larger framework rather than force people into a closed system of digital currency. As Azzano puts it, "For many consumers, Ripple could become an invisible brand upon which their money moves, but they never know it because they interacted with better known banking brand names as the end points."

This means that -- although you're not likely to see "We accept Ripple" signs in the same way you see Bitcoin signs -- you may still end up using the Ripple protocol, especially for transactions between buyers and sellers who use different forms of currency. This is where Ripple could prove to be a real game-changer.

I am new to cryptocurrency. However I am not new to business stratedgy.

I immediately saw tremendous potiential in Ripple protocol. I invested majority of fiat money in Ripples in late March. Actually was still a fraction of a cent so my stake is substantial for a fraction of the risk.

Obiviously my investament has literally soared high 24 cent low 17 cents. Volume is $220,950,000.0. Ripple has accomplished what others never imagined possible. Adoption of banks to Ripple protoco is a star studded list. No other cryptocurrency except Stellar has an actual business plan that has been implemented. I am investing more expect to see Ripple rival Bitcoin soon. Cudos to Ripple's team for making the American dream a reality to ordinary folks.

yes, Bitcoin is an experiment in decentralization. Like most systems, Ripple started out with an entity having full control.

a 51% attack does not mean "full control" and no enity had 51% control. They have a pool where a bunch of people switched to a different pool once they saw the potential for bad things to happen.That is how an incentivised decentralized system works. the links and quotes you point to are hyperbole written by someone who doesn't understand how the system works.

We had the same kind of hyperbole last year when Dan Kamisky said that one entity controls the majority of mining hardware and he predicted Bitcoin would collapse or at lease change the "proof of work" system by the end on 2013. Bitcoin is full of people making hyperbolic claims to get publicity or do pump and dump schemes.

@anon Bitcoin's reliance on 51% control of the Blockchain opens it up to full control and vulnerability. And some say that has happened with GHash. See http://hackingdistributed.com/p/2014/06/13/in-ghash-bitcoin-trusts/#sthash.nwdzbBnp.dpuf

The main pillar of the Bitcoin narrative was decentralized trust. That narrative has now collapsed. If you're going to trust GHash, you might as well store an account balance on a GHash server and do away with the rest of Bitcoin -- we'd all save a lot of energy. This is a big deal, and it would be a mistake to downplay it in the hope to buoy Bitcoin prices. It will be difficult to attract new people to Bitcoin when it's controlled or controlable by a single entity. If those people were willing to trust a single entity, they could have dodged inflation by putting their fiat into World of Warcraft or subway tokens. They came to Bitcoin because it was decentralized, and now it isn't. The first step is to admit that we have a problem.

There is one big difference, anon. If the Bitcoin system breaks or fails, your Bitcoins are gone. And all you can have on the Bitcoin system are Bitcoins. If the Ripple system breaks or fails, your funds are still held by the gateways you chose to hold them and they still owe those funds to you. The Bitcoin system is the custodian of all the assets it handles, the Ripple system is not.

(I am one of the original architects of Ripple and am an employee of Ripple Labs, speaking only for myself.)

Simon: You don't trust Ripple with your money, that's not how Ripple works. Ripple basically just atomically moves funds from one place to another. At no time does the Ripple system have custody of the funds.

The way Ripple works is that some entity you trust that you choose holds your money. Ripple permits you to easily direct that entity to pay your funds to whomever you choose. If Ripple somehow fails or ceases operation, then perhaps you can't make payments. But the entity you trusted is still holding your money and still owes it to you.

@Simon Ripple is working with banks, so that may give you the best of both worlds. As for FDIC, that does protect your deposits, but from my experience it does not protect you from bad checks. If someone bounces a check on you, you also have to pay a fee, and that can go as high as $30, too. So there is always some element of trust in any financial transaction.

I agree, that based on what I read here it seems cheaper and faster. But why would anyone trust his/her money on the unknown people who run this business? You do not know them they can just pull up their tent one day and dissapear with everyone's money. US and European banks are substantial large organizations whith FDIC backing. Hence, while they are VERY slow and VERY expensive, at least your money is safe with them. The best outcome for average people and businesses here is that this new competition will force banks to become reasonable with both their fees and their execution speed. In fact some smaller banks have been moving into this direction. My bank has sped up transfer times a LOT during the past couple of years, from many days to a single day. The wiring fees are still very high at $30.

If you talk to people who have been involved for years, such as Bitcoin developer Mike Hearn, they say the entire purpose of the Ripple (well before there were any employees) concept was to avoid the money transmitter issue. No matter how you dice it and slice it, destroying Ripples to facilitate a transaction is a transaction fee. It remains to seen how regulators will view it in the long run.